Harvey industry loss seen up to $25bn (ex-NFIP) by Morgan Stanley

Analysts have updated their estimates for the insurance and reinsurance loss caused by hurricane Harvey’s impacts on Texas and the surrounding area, with Morgan Stanley now pegging the industry loss at up to $40 billion including the NFIP portion of flood losses, or up to $25 billion for the private market alone.The analysts suggest re/insurance losses in a range of $15 billion to $40 billion, including the National Flood Insurance Program (NFIP), or $10 billion to $25 billion for private re/insurance alone to pay, with individual company exposure expected to be manageable.

The analysts break down their estimate as follows and explain their rationale for the estimates:

$2-4b wind damage,

$3-6b auto losses,

$5-15b commercial flooding, and

$5-15b National Flood Insurance Program (NFIP) claims.

Modeling firms RMS and AIR project low single digit billions of wind-related losses. Houston metro area has ~4m vehicles. Assuming ~70% have comprehensive coverage, ~20% of the area is flooded, and average claims of $5- 10k, total auto losses could range $3-6b. Commercial flooding losses are a wild card and difficult to estimate.

Similarly, it is highly difficult to estimate NFIP claims. NFIP paid out ~$1.1b to ~30k claims during Allison. RMS estimates ~500k policies could be affected by Harvey, implying ~15x of Allison payout. We use a 5-15x multiplier to calculate $5-15b NFIP losses. By comparison, NFIP paid $16.3b for Katrina and $8.6b for Sandy.

The analysts expect “a significant portion” of the private market loss will fall to reinsurance capital, but says the breakdown remains unclear due to various reinsurance attaching to commercial exposures.

They also note that at their $5 billion plus NFIP flood loss they are expecting the NFIP’s reinsurance layer to be triggered and begin paying out, potentially becoming a total loss, as we discussed in this article yesterday.

If Morgan Stanley’s upper end estimate proves correct then the reinsurers on the NFIP program will pay out in full.

The analysts continue to believe that wherever losses from hurricane Harvey level out, they will not be sufficient to turn property insurance or reinsurance rates and will only act as another stabilising element as the next sets of renewals approach.